T&L Training – 25 September 2014

Presenter: Anna C. Maso

Completion of IRC Forms & Electronic payments - Group tax, BIWT, LLP & LPP

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Objectives

- Acquire an Overview of “SIGTAS”

- Completion of new forms

- To know our requirements as tax agents.

- To know what Sections of the ITA 1959 as Amended is applicable

- Encourage taxpayers to familiarise themselves with the use of electronic transfers to mitigate Late Lodgement Penalties (LLP) & Late Payment Penalties (LPP).

- Provide reliable advice to taxpayers in relation to when lodgements and payments are due payable and grounds which the IRC can use to impose Late Lodgement & Late Payment penalties.

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Overview of Standard Integrated Government Tax Administration System (SIGTAS)

Solution name:         Standard Integrated Government Tax Administration System (SIGTAS)

History SIGTAS has been implemented since 1996 in 24 countries around the world including Senegal, Lebanon, Mali, Ethiopia, Rwanda, Kosovo, Madagascar, Papua New Guinea, Liberia, Nigeria, etc. and several other states.

Solution description:

SIGTAS is a modern tax administration system that allows governments to improve tax compliance and thus increase collected revenue.

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Annual Reconciliation of salary & wages tax and completing statements of earnings (SOEs)

A new Annual Reconciliation form for the Salary and Wages tax has been created. This form is called an S6 form ‘Group Employer Reconciliation Form’, and this replaces any other Annual Reconciliation form issued in prior years.

A new form has been created specifically for large taxpayers. It is called the S1-L

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Personal Income Tax Return of Employees

Employees may or may not be obligated to submit a personal income tax return.

If Salary and Wages is the only source of income for an employee and income tax has been correctly deducted from their wages then it is not necessary for them to lodge an income tax return.

If, however, the employee earns 100 kina or more of income from another such as rent, investment income or other business income then they are obligated to lodge a tax return.

They need to attach a copy of their SOE to their income tax return when it is lodged.

Employees may also choose to lodge a tax return if they are entitled to a refund – such as if they have a Housing Allowance variation or School Fees.

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Business Income Payment Tax – Remittance & Annual Reconciliation Statement

NEW MONTHLY REMITTANCE FORM

This form is called a P5 – “Business Income Payment Tax Remittance Advice Form”, and this replaces any other monthly forms issued in prior years.

This form no longer requires details of each individual payment made during the month. Only the totals for the month are required.

NEW ANNUAL RECONCILIATION FORM

This form is called a P8 – “Business Income Payment Tax Reconciliation Statement”

This form replaces any other Annual Reconciliation forms issued in prior years.

A new monthly remittance form and the Annual Reconciliation form for the Business Income Payment Tax has been issued by the IRC.

Note: As part of the standardisation of the forms and processes, some forms have been eliminated orConsolidated.

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Cont. Business Income Payment Tax – Remittance & Annual Reconciliation Statement The C9 “Annual Income Reporting Statement” has been combined with the P7

“Income Tax Deduction Certificate” as part of the P8 “Business Income Payment Tax Reconciliation Statement”.

The P8 is now used for the annual reconciliation of BPT plus for advising suppliers (business income payees) of the deductions made on their behalf during the year (which was previously done using the P7 form). i.e.

When providing the P8 to payees, the form should only include the total of payments made to that business income payee. The annual reconciliation version of the P8 is sent to the IRC and it contains the payments made to every payee (with a contract value exceeding 500 kina).

From 1 January 2014, that threshold is increased to 5,000 kina.

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Modernisation of Tax Administration – Withholding Obligations & Remittances

- Tax agents are obliged to remind taxpayers of their obligation to deduct the appropriate amounts of withholding taxes from salary/ wages, interest, dividends, foreign contractor and management fees paid and remit such payments by the specific due dates.

- Late payment penalties will be applied to these payments (such payments will only be remitted in exceptional circumstances).

- Taxpayers will required to provide a written submission outlining the facts and circumstances of any such additional tax or penalties.

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Modernisation of Tax Administration – Implementation of SIGTAS & Paying taxes by Electronic Transfer

Important points to consider:

- All annual reconciliations for all withholding tax types listed below will be completed using SIGTAS

- The main purpose for the provision of withholding taxes in the ITA is to facilitate the collection of taxes on certain income at source

Withholding Taxes are levied on several payments: The person making the various payments is to deduct withholding tax which is as;

1.Dividends (17%)

2.Interest (15%)

3.Management fees (17%)

4.Foreign contractors (12%)

5.Royalties (generally 30%)

6.Overseas ships (2.4%)

7.Non-resident insurers (4.8%)

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Paying your tax by electronic funds transfer

Step1) Work

out the paymen

t amount

and complete any

required tax form

• Most tax type has a form that is to be completed when payments are made. Use the standard form that you would normally use for these payments. Include the calculation of the tax payable and sign the form as normal.

• This provides the details to be used for the payment.. For an Income Tax Assessment payment, use the Notice of Assessment

Step 2) Log on

to Internet Bankin

g

• Use the standard process that your bank has provided for Internet Banking to log on to their system.

Step 3) Process

the Payme

nt

• The exact details of processing payments will vary from bank to bank

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Cont.. Paying your tax by electronic funds transfer

Step 4) E-mail

the IRC

• The tax form must be scanned and emailed to the IRC. Attach the scanned tax form to an email and send it to: payments@irc.gov.pg including the following information in the email:

• Taxpayer’s Name and Tax File Number (TFN);• Tax Type being paid (e.g. G.S.T., Income Tax, Salary and Wages Withholding Tax, etc.);• Tax Period (the month and year covered);• Payment date and Amount.

• The IRC will then use this information to match the payment and credit your tax account.

Step 5) Receive Receipt

• The IRC will send you a receipt notifying you that the payment has been received and posted to your tax account.

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Income Tax Act 1959 as Amended – LLP - S 316 (1) & LPP - S 262 (1)

Section 316(1) of the Act states:

Notwithstanding anything contained in Section 313, 314 or 315, a taxpayer who fails duly to furnish as and when required by this Act or the regulations, or by the Commissioner General, a return or any information in relation to a matter affecting either his liability to tax or the amount of the tax, is liable to pay as additional tax or penalty an amount equal to the tax assessable to him or the amount of K100.00 for each complete calendar month or part of a month calculated in respect of the period commencing on the last day that return or information was due to be furnished and ending on the day on which that return or information is furnished, whichever is the greater.

Section 262(1) states:

If any tax remains unpaid after the time when it becomes due and payable, additional tax is due and payable at the rate of 20% per annum on the amount unpaid, computed from that time or, where an extension of time has been granted under Section 261, from such date as the Commissioner General determines, not being a date before the date on which the tax was originally due and payable.

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Imposition of Late Lodgement Penalties (LLP) and Late Payment Penalty(LPP)

Imposition of Penalties

Encourage compliance with future obligations

and liabilities Discourage the National

Revenue being mis-

used as the “financer or

choice”

Deny late lodges/ payers

any advantage over those

who lodge and pay on time

Deny late lodges/ payers

any advantage over those

who lodge and pay on time

Stakeholder’s interest (Law

has to be administered )

Meet lodgement &

payment obligations

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Remission of Late Lodgement Penalties (LLP) and Late Payment Penalty(LPP)

Remission of

Penalties

Onus is on the taxpayer to

demonstrate that remission is

warranted either in full or part Considered in view

of the legislative intent that entities should be liable to

penalty for late lodgement or pay

late

Result of IRC activity

Nature of any contact that may

have occurred with IRC prior to the due date for lodgement

or payment

Length of time the assessment / payment was

overdue – indication of

taxpayers efforts to mitigate LLP & LPP

Remission of penalty may be

granted where the delay is due to circumstances beyond control

Where a taxpayer has a good long

outstanding compliance history

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Imposition and remission of Late Lodgement Penalties (LLP) and Late Payment Lodgements (LPP)

The relevant provisions of the more common taxing statutes imposing additional charges.

LATE LODGEMENT

Tax Type Penalty Provision Penalty Remission Provision

Income Tax s316(1) The greater of: 100% of tax assessable; or K100 per month

s316(3)

GST s95A(1) K100 per month s95A(2)

LATE PAYMENT PENALTIES

Income Tax s262(1) 20% p.a. on the amount unpaid

s262(2)

Management fee withholding tax

s196T(3) 20% p.a. on the amount unpaid

s196T(4)

Dividend withholding tax s311E(4)(b) 20% p.a. on the amount unpaid

s311E(5)

Interest withholding tax s312AE(5) 20% p.a. on the amount unpaid

s312AE(6)

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Cont.. Imposition and remission of Late Lodgement Penalties (LLP) and Late Payment Lodgements (LPP)

Cont. LATE PAYMENT PENALTIES

Tax Type Penalty Provision Penalty Remission

Provision Foreign Contractor withholding tax

s196F(6) 20% p.a. on the amount unpaid s196F(7)

Royalty Tax (non-resident) s357(9) 20% p.a. on the amount unpaid s357(10)

Advance payment Tax – mining and petroleum companies

s311AW(1) 20% p.a. on the amount unpaid s311AW(2)

Salary & wages tax s299G(8(b) 20% flat of the principal amount (“the relevant penalty amount”) plus 20% p.a. of the principal amount and the relevant penalty amount

s299G(8)

Business income & Prescribed Royalties Payments

s284(1)(b) 20% flat of the principal amount (“the relevant penalty amount”) plus 20% p.a. of the principal amount and the relevant penalty amount

s284(2) s284(3)

GST s85(1) 10% flat of the unpaid tax plus 20% p.a. of the amount that remains unpaid

s85(4)

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PwC - Completion of IRC Forms & Electronic payments – Group tax

  GROUP TAX  CLEARANCE

1.  Statement of earnings - Can we prepare prior year’s annual reconciliation using the new forms.

YES. New forms should be used to complete prior year outstanding group tax stationery

2.   What is deadline (specific date) in accepting the monthly group tax remittance using the old form (i.e. group tax remittance advice.)

Specific date could not be given. The IRC has confirmed that they should bring

 3. Large withholding and small withholder - can they use the same form in the interim 

Yes for the interim, next year large taxpayers will be required to use SL-1 Forms and not the S1 form, so from now to next year taxpayer’s should arrange for their payroll systems to be able to report the changes.

 4.  Is TC numbers still applicable but only for tax return purposes?

Yes TC numbers should be used.

 5 Please advise the grace period for lodgment of the S6 Form.

No specific date could be provided by the SIGTAS team.

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PwC - Completion of IRC Forms & Electronic payments – Business Income Withholding Tax

BUSINESS INCOME WITHHOLDING TAX  CLEARANCE

1. Annual reconciliation - Can we prepare prior year annual reconciliation using the new forms

YES, annual reconciliation forms should be completed on the new forms.

2. Is the IRC still accepting applications for certificates of compliance on the old forms?

Yes.

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Discussions:

Scenario 1

Facts:

A taxpayer has multiple months of Salary or Wage tax deductions outstanding but is lodging and paying consistently late. Penalties are applied as each month’s late payment is received. The taxpayer requested remission stating that due to their remote location and general cash flow difficulties they are unable to pay by the due date.

Remission consideration:

No remission would be allowed in these circumstances. Given the monies being withheld from their employee’s salaries is held in trust to be remitted to the IRC and are not the employers funds for him to use as he likes. Cash flow difficulties in such circumstances are insufficient reason for remission. The taxpayer has made no attempt to make one large catch up payment but rather continues to pay each month late. This is indicative that they are making no attempt to change their behaviour. They have provided no evidence of attempts to mitigate the problem such as obtaining finance from other sources so that they can meet their tax obligations as and when they fall due. In relation to the argument that they are in a remote location they have not explained why alternative payment measures such as electronic payment cannot overcome this or made estimate payments in advance of the lodgement date as a means of mitigating the late payment amount.

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Cont.. Discussions

Scenario 2

Facts:

A taxpayer, after reviewing their income tax return

which was lodged and assessed some 4 years

earlier realizes that they have failed to withhold

interest withholding tax on an amount of interest

paid to an overseas entity which was claimed as

a full deduction. He subsequently remits the

appropriate amount to the IRC and requests

remission of penalty on the basis that this was a

genuine oversight which he has voluntarily

disclosed. He is not aware of any compliance

activity being contemplated in relation to the

specific entity, or any compliance project targeting

the industry or interest withholding.

Remission consideration:

Partial remission in such circumstance may be

warranted. If the non- remittance was unlikely to

be picked up by normal compliance activity, that

is, the taxpayer is genuinely coming forward and

voluntarily disclosing information the IRC would

not otherwise have obtained we would not want to

impose penalties in such a way as to deter such

behaviour. The level of remission would need to

be balanced with the loss of the revenue to the

State. One would also need to consider the

relationship between the lender and borrower and

any other commercial or economic benefit sort as

well as the payee’s broader compliance history.

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Cont.. Discussions

Scenario 3

Facts:

A taxpayer lodges his GST return for the month of

June on the 21st July. It is a credit balance on

which he expects a refund. He subsequently

lodges his July group tax return on the 7th of

August with instructions to offset the amount

outstanding with his GST credit. The IRC fails to

make the offset until the credit is verified some

time later. The IRC then raises penalties. The

taxpayer lodges a remission request on the basis

that the penalties have

Remission consideration:

All penalties will be remitted. As the taxpayer has

requested that his pre-existing GST credit be

utilized to offset his Salary or Wage liability then

the penalties should have never been imposed as

no debt liability arises. However, if the GST credit

is later found to be excessive and is reduced by

the Commissioner General, in full or in part, then

the group tax liability is reinstated to the extent

that it cannot be offset and full penalties would

accrue from the original due date until the

balance outstanding is paid in full. It would only

be in exceptional circumstances that this later

penalty amount would be remitted to any degree.

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Calculation on LLP – Income tax return

That is;

31 December 2011 – taxable income: K24,415,977

Assessed tax: K24,415,977 x 30% = K7,324,793.10

Due date for lodgement – 30/06/2012 however lodged on 26/03/2014

Days late – 1/7/2012 to 25/03/2014: 630 days late

Rate – 10%

Calculation;

K7,324,793.10 x 630/365 x 10/100

=K7,324,793.10 x 1.73 x .10

=1,267,189.21

=K1,267,189 LLP imposed for the year ended 31 December 2011

The amount of which the LLP is calculated is the assessed tax times the number of days late at the rate of 10%.

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Calculation on LLP – Salary / wages tax

That is;

S&W tax for the month of March’14 of K425,839.52

Due date for lodgement – 07/04/2014 however lodged on 13/05/2014

Days late – 07/04/2014 - 13/05/2014:

36 days late

Calculation;

K425,839.52 x 20%

= K85,167.90 + 425,839.52

=K511,007.42 x (36/365) x 20%

=K10,080.15

= Calc.by IRC K1,866.70 (variance K8,213.45)

The amount of which the LLP is calculated is 20% flat of the principal amount (“the relevant penalty amount”) plus 20% p.a. of the principal amount and the relevant penalty amount

It appears that the IRC has come up with interest of K1,866.70 and not K10,080.15.Technically the interest penalty could be higher but the IRC have allowed a grace period meaning the interest penalty is not for the full period between the 7th of April and 13th of May.

It is suggested to advise the client that the IRC have imposed penalties on the basis of the flat penalty of 20% of the tax liability and interest of 20% pa on the amount of the tax and flat penalty.

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Questions & Comments/ Any suggestions etc.